MSFT

I worked for part of my career in the Personal Systems group at Microsoft. The Personal Systems group was full of great people, was a very successful business (MSDOS and Windows 3.x/95), and there was just a great vibe in the organization. I think I had a decent reputation as a manager and peer, but as they say “a rising tide lifts all boats”, and it was easy to seem smart and effective when I was part of a great team and business.

In early ’98 (I think), I moved over to the MSN group, Microsoft’s first major foray into online services. The joke inside Microsoft was that “moving into the MSN group caused 20 points of IQ to evaporate”, and I fared no better than anyone else. The group was dysfunctional, there were too many people without great product shipping experience, the strategy was unclear, the whole thing was just a cesspool. Ultimately I left Microsoft in large part due to my experience in this group — there was no coherent view of what the strategy should be (at every level of the company), and I was going to have spend years moving people out of the organization, which was not a challenge I wanted to take on.

I’ve been reading all the negative press around the “NCAA and Emmert”:http://www.nytimes.com/2013/02/28/sports/ncaafootball/calls-for-reform-grow-louder-for-ncaa-and-mark-emmert.html?pagewanted=all&_r=1& this week. The mishandling of the Miami case, Pete’s broadside against the NCAA, stupid amateurism decisions, etc. A lot of finger pointing at Emmert and calls for a change in leadership.

I have no idea if Emmert is a great guy or not, but he is in a broken system. The entire premise of the NCAA is wrong. Billions of dollars sloshing around in the system, flowing to the institutions and media companies and adults, and just a dribble flowing to the athletes. The system is doomed to failure, there is going to be leakage everywhere. As long as Emmert tries to maintain the system, he is going to look like an incompetent. If he really cares about the student athletes, he’d be wise to step outside the system and attack it.

So the new “Chromebook Pixel”:http://www.wired.com/gadgetlab/2013/02/chromebook-pixel/ is out, and it is an interesting move. Nice hardware, but expensive, and of course limited to whatever software runs on Chrome.

Being the “proud” owner of a Surface RT — another nice piece of hardware limited by its software — I’m not betting that this is going to be a big seller.

If I was Google, I would have built a Windows machine with great Google service integration and a Google/Chrome alternative to the new Win8 interface

* PC OEMs are not doing an amazing job on building machines, the field seems wide open
* One less thing to explain to users — it is a Windows machine, it runs all Windows software if you want to, no need to explain Chrome
* Probably easier to get wide distribution — it is just a great Windows machine
* Users have to deal with a new interface on Win8 anyway — the time is ripe to offer something that is different than Metro (and maybe supports the classic Windows look better)
* It would befuddle Microsoft. They can’t hate or attack a Windows machine.

I’ll never buy a Chromebook. I’d think about a great Windows PC with great Google integration.

Gabe is a smart guy and he is “concerned about Windows 8″:http://allthingsd.com/20120725/valves-gabe-newell-on-the-future-of-games-wearable-computers-windows-8-and-more/

And there are investors like “Bronte Capital”:http://brontecapital.blogspot.com/2012/07/changing-my-mind-on-microsoft.html?spref=tw who are abandoning their MSFT positions.

Both super smart guys and I respect their thoughts and analysis, Gabe in particular you ignore at your peril.

But really — the catastrophe for MSFT happened long ago, the consequences are just being fully realized now. Win8 and Surface and Azure are responses to that catastrophe, and are necessary, though they are very late to the party.

The lock on developer mindshare was lost in 1995 with the advent of the Internet. I stood in front of a room of developers in late 95, trying to convince them to develop Windows-specific content for Internet users, and got savaged. This was at the height of MSFT’s dominance and the leading edge of developers had already moved on to platform-independent install-free solutions like HTML and Java. There was no getting them back. Some parts of MSFT fought hard to stem this tide in the late 90s but ultimately the company never had the focus and products to remain relevant to these developers. The development community moved on to Internet-friendly technologies — first HTML and Java, php, perl, python, ruby, aws, etc etc etc.

Similarly, the tide has been running against the “MSFT OEM model for 15 years”:http://theludwigs.com/2012/02/msft-and-the-decline-of-the-pc-hardware-ecosystem/. Buying a PC hasn’t been a great experience for years and the OEMs gave up on design leadership years ago.

MSFT is now making bold moves to address the erosion of developer relevance and the erosion of the oem model, but the Win8 and Surface and Azure may all be a little late, or may take some time to stem the tide. They are necessary steps, they are not the catastrophe, they are the response to the catastrophe. They may not be enough, MSFT may have to continue to take big risks to get back to a position of leadership and growth in some segments. At almost any cost, MSFT has to get back out in front of the developer parade for some significant segment of developers.

A new “Vanity Fair”:http://www.vanityfair.com/online/daily/2012/07/microsoft-downfall-emails-steve-ballmer article on MSFT’s struggles, and “DF stresses”:http://daringfireball.net/linked/2012/07/03/microsoft-vf the impact of the stack rank:

Eichenwald’s conversations reveal that a management system known as “stack ranking” — a program that forces every unit to declare a certain percentage of employees as top performers, good performers, average, and poor — effectively crippled Microsoft’s ability to innovate. “Every current and former Microsoft employee I interviewed — every one — cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees,” Eichenwald writes. “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

I am a decade removed from MSFT and have no particular insight into the culture today, but this smells like BS to me. No one ever loved stack ranks, team members or managers. It was a sucky process and I hated it from both sides. But…everyone always wanted to know their relative importance to the team, and the top 50% of my teams never felt bad about the outcome. Whether explicit or implicit, some stack ranking takes place in every organization, unless you are working in some commune. I’ve worked in orgs with less explicit stack ranks, but it was always there, and everyone knew about it. I don’t believe the stack ranking system has hurt MSFT at all, I think this is the whining of bottom quartile performers.

There is plenty of other meat in this article, and I am on board with a lot of it, but not the stack rank point.

If I were to pick one factor that has hampered MSFT, I’d say the love of grand convergence strategies. The current imperative to run the exact same bits on PCs, tablets, and phones. The many many grand storage convergence strategies that have largely failed. In earlier times, the insistence on one Windows code base which inevitably created internal winners and losers. The many many “strategy taxes” that teams have to pay to be in line with the grand strategy du jour. Looking at the current PC/phone/tablet issue, MSFT has 0 share in phones and tablets, and unless they fix that, it doesn’t matter if phones/tablets/PCs are converged. Job one should be to create the greatest, no-compromise, phone and tablet products. And then when MSFT is sitting on an installed base of millions of these devices, they can go solve the convergence issues they have created for customers and developers. But there is no point in putting the convergence horse before the cart.

UPDATE: over on “my FB page”:https://www.facebook.com/jhludwig several very bright and respected MSFT alums have some good comments, several of them are more negative about the stack ranking system than am I. So there is room for reasonable people to disagree on this point. Everyone agrees on rewarding achievement but would go about it different ways, and I certainly don’t want to stand up as a defender of the 1988-2000 MSFT stack rank system, I would certainly change some things about it if I was implementing a system.

I still stand by more core point, the stack ranking system is not the cause of any MSFT stagnation; it may not be helping, but it is not the cause.

* “Microsoft Surface”:http://www.microsoft.com/surface/en/us/default.aspx seems like a very interesting product, the announcement did the job of generating buzz (and probably stalling enterprise iPad purchases, which was likely a key factor in announcing this early), and it was a move MSFT had to make — the existing OEM model has been getting killed by the superior Apple integrated design, retail, and support experience. So the right move by MSFT, but they threw over 25 year relationships with OEMs to make it happen. It will be fascinating to see how OEMs respond — goaded to create even better Windows products, run to Android, other? I wonder if MSFT will license all the nice keyboard and cover technology to OEMs if they want to build Surface-like machines.
* “Windows 8 not coming to existing Windows Phones”:http://news.cnet.com/8301-1035_3-57456655-94/no-windows-phone-8-upgrade-for-current-devices/. No new news here, Microsoft just confirmed they are abandoning existing Windows Phone devices. Sure they are backporting some of the UI features, but I don’t expect any new significant app to ever appear for the existing Windows Phones, and that sucks. As a user, I will certainly walk away from the device as soon as it makes sense (likely iPhone 5 time). And how must Nokia feel after pinning their corporate strategy to Windows Phone — there is no way Lumia sales improve on this news.
* And of course Nokia is now on deck. MSFT just demonstrated a willingness to dump 25 year relationships to achieve MSFT’s goals. How patient will MSFT be with Nokia? Not very.

When I joined MSFT in the 80s, MSFT was selling its LAN products through 3Com and other OEMs, and MSFT blew up those relationships when they didn’t pan out. Right move for MSFT, tough on 3Com. In the early 90s, the IBM relationship played out the same way. Again the right move for MSFT. And these current moves seem right for MSFT.

As a user I’m pretty unhappy about the phone situation and I will probably dump my Windows Phone, but I am pretty happy about competition in the tablet space, it will result in better choices for all of us.

UPDATE: “DF points”:http://daringfireball.net/2012/06/surface_between_rock_and_hardware_place to “this excellent article on asymco”:http://www.asymco.com/2012/06/20/who-will-be-microsofts-tim-cook/ which digs into the numbers for msft behind the decision to bypass the oems.

I actually think the writer nails the longterm issue for Facebook and Google — do you want to spend your career stuffing ads in people’s faces, or do you want to build products that help them do something, that please them, that make them better at their jobs?

When I started my career as a consultant, I worked with super smart people, I was well paid, and I got to engage with senior people in industry, and this was all compelling. But ultimately, I came to view my work product as reports on a wall, that clients might or might not ignore. This massively undervalues the efforts of many consultants, but as a young professional, this is how I perceived it.

And so I took a huge pay cut and responsibility cut and moved to MSFT to work on getting computers into everyone’s hands, that was an exciting challenge and an exciting time. Young people today are just as hungry for a meaningful challenge, and I suspect ad serving is not that challenge for a lot of people.

“Ninjablocks”:http://www.kickstarter.com/projects/ninja/ninja-blocks-connect-your-world-with-the-web — looking back at my article on “MSFT and the hardware ecosystem”:http://theludwigs.com/2012/02/msft-and-the-decline-of-the-pc-hardware-ecosystem/, this is the kind of innovation and brainpower MSFT needs around the PC platform.

“Microsoft’s biggest miss”:http://minimalmac.com/post/17758177061/microsofts-biggest-miss is a nice discussion of another issue for the company, the slippage in relevance of Office.

I can’t speak to the whole market, but my document composition has moved almost entirely to vehicles like Evernote, Dropbox-hosted apps, Google Docs, and draft emails because the absolute #1 feature I need is document availability from everywhere — work machine, home machine, iPad, phone, kiosk, etc. No other document composition feature even comes close for me, I’m happy to use simple Markdown syntax for formatting. Office has started to embrace this issue but it is a little too late, I’ve kind of moved on.

The individual Office apps are still great apps. And it is still hard to not have Office on a machine with all the inbound Excel and PPT files, so I am still an Office buyer. But it feels like this kind of buying behaviour will collapse at some point — the viewers in Mac Mail for instance aren’t terrible.

In the late 80s, IBM attempted to reassert control over the PC hardware platform with the introduction of the PS/2 and its proprietary “MicroChannel”:http://en.wikipedia.org/wiki/Micro_Channel_architecture architecture. The cloners fought back, customers voted with their feet, the PS/2 initiative failed, and the era of open PC hardware continued and flourished. This was hugely beneficial for MSFT as a thousand PC OEMs bloomed, PC-based innovation surged and costs dropped, and MSFT software rode the wave of market expansion.

And it was great for end users. Not only because it drove system costs down, but it also created a rich market of add-on products — everyone could mix and match hardware to create their optimal system, whether they cared about cost or performance or maintainability or upgradability or whatever. Corporations could spec out and build standard low cost machines, enthusiasts could build super-tweaked machines, verticals could build out specialty machines, all on the same open hardware platform.

In the last 15 years, though, the market has shifted dramatically towards the laptop form factor. This shift has been a relative disaster for MSFT. The industry has moved away from an open hardware chassis with mix-and-match components, to closed tightly-engineered all-in-one machines. This shift has played to Apple’s strengths in design and integration and has negated many of the benefits of the PC ecosystem. The PC industry is still struggling to figure out how to regain design and profit momentum — Intel’s “Ultrabook”:http://en.wikipedia.org/wiki/Ultrabook effort being the latest scheme. But the Ultrabook is just a direct response to the MacBook, it does nothing to recapture the open hardware experience of the 90s.

The open hardware community still exists in various forms, but is no longer focused on the PC platform and is not much of an asset for MSFT. Enthusiasts still build PCs, mostly for gaming — “Maximum PC”:http://www.maximumpc.com/best-of-the-best for instance has a good guide to components, “Newegg”:http://www.newegg.com is the place to buy. But this isn’t mainstream any more. The “maker” community is vibrant but is focused on other platforms largely — “Arduino”:http://www.arduino.cc/, the “Kickstarter”:http://www.kickstarter.com community, etc. The vibe and energy around open hardware is great, but it is no longer tied to the PC experience and is no longer an asset for MSFT.

MSFT has always been great at chasing taillights and is hard at work supporting the Ultrabook, competing with the Apple stores at retail, pushing Windows Phone, etc. But chasing Apple’s taillights results in products that are more and more like Apple’s — fully integrated hardware/software/services, a captive retail experience. MSFT has to do all this, the mainstream of the market is here, but there is nothing distinctive about the resultant products and experience. The Ultrabook/Windows/Microsoft Store products may equal the Apple experience, and may offer users a few more choices of hardware brands (does anyone care?), but the experience won’t stand out. Necessary work but not sufficient to recapture thought leadership in the market — at the end of the day, MSFT will be able to claim parity but no more than that.

If I was in a leadership role at MSFT, I’d invest in strategies to recreate the open hardware platform dynamic around the Windows platform. It is not obvious how to do so with the laptop and tablet as the mainstream platform, but I would spend $100s of millions trying. MSFT clearly has the cash to spend on new frontiers and new adventures, a couple hundred million on an effort to change the basis of competition in the PC market seems like a wise bet, even if it fails.

How about putting a “maker’s corner” in every retail store with modified cases and modified machines, maybe even workshops? Get the energy of the PC gaming community into the store, let people see this energy. How can the laptop design be modified to support add on hardware — super high speed optical expansion busses, wireless high speed expansion busses, novel expansion chassis ideas? Sifteo cubes are kind of cool, can this idea be used to provide hardware extensions to laptops? Are there other ways to “snap on” hardware to extend the laptop or tablet, using bluetooth or induction or other mechanisms? Can MSFT seed the maker community with funds or tools? Can MSFT embrace Arduino somehow, or Kickstarter? Could the PC be the hub for thousands of Arduino-based sensors and actuators and gadgets? These ideas are all admittedly poorly thought out, and I am not sure any one idea is right, or if any will work.

But I would spend a lot of money chasing after any idea that would move away from closed all-in-one hardware designs, and I would experiment with many ways to reinject open hardware dynamics back into the PC/tablet market. Ultrabook is not this — it is a fine and adequate taillight chaser, but it won’t shift competitive balance back in MSFT’s favor.

This is not the only reason for MSFT’s stagnation in the last decade, there are many other aspects to consider, but the dwindling of the open hardware ecosystem has been a loss of MSFT. For another take on Apple’s success against MSFT in the last decade, check out “Rich’s analysis”:http://www.themarketingplaybook.com/2012/02/stocks-bonds-commodities-and-apple/ — the observations about vertical vs horizontal integration ring true.

Apple’s quarter (NYTimes): “We’re making our most innovative products ever and our customers are responding”…”unexpectedly strong sales of Macintosh computers and a surge in iPhone purchases pushed Apple’s profit up 15 percent in the third quarter”…”PC shipments for the industry fell 3 to 5 percent over the last three months. But Apple said it sold 2.6 million Macs in the quarter, up about 18 percent from the 2.2 million it sold in the previous quarter”…”overall gross profit margin grew to 36.3 percent, from 34.8 percent in the year-ago quarter”…”Revenue rose to $8.34 billion, from $7.46 billion last year”.

MSFT’s quarter (NYTimes): “has been humbled, both by the recession and by problems of its own making”…”Year-over-year revenue and full-year sales of Microsoft’s flagship Windows software dropped for the first time”…”29 percent drop in net income”…”17 percent drop in quarterly revenue”…”warned that people should not expect a major bounce-back in technology spending when the economy recovers.”

Hmm. Apparently the economic downturn is worse among PC buyers than among non-PC buyers.